Facebook Possible $1B Fine Could Hurt Stock

December 17, 2018
621 Views

Facebook can’t seem to avoid scrutiny for its business practices, particularly when it comes to the protection of user data. The Cambridge Analytica data misuse scandal hurt the company earlier this year, tanking stock and sending confidence to record lows.

Although stock partially recovered in the following months, there have been further privacy concerns since then. Just last week, the company went public with the news that it had discovered a bug where third-party developers could access private user photos. Almost 7 million users were affected by the bug.

Now European Union investigators have become involved, led by the Irish Data Protection Commission. Facebook’s breaches could be prosecuted under European law, leading to a fine of up to 4% of annual revenue.

Watchdogs Concerned That Facebook Didn’t Announce a Known Data Breach

Companies that operate in the EU are subject to General Data Protection Regulation (GDPR), a set of strict privacy rules that aim to protect internet users from the exposure, theft, and inappropriate use of personal data. Facebook’s European headquarters is in Dublin, Ireland, meaning that the company must remain in full compliance with the law, even if its head office is in the United States.

Under GDPR rules, any company must inform regulators of data breaches within 72 hours of discovering them. Facebook’s most recent privacy flaw was identified internally in September, but the company waited until November before informing regulators. Facebook has stated that it reported the bug as soon as it was “considered a reportable breach.”

Company lawyers are now likely to face a legal battle over interpretation of EU law. In the past, European regulators have been concerned over Facebook’s tardiness when reporting breaches and the minimal information that it provides.

The company released a statement to CNN this week, telling the network that “We are in close contact with the Irish Data Protection Commission and are happy to answer any questions they may have.”

Fine Could Hurt Facebook Stock

Facebook generated total revenue of $40.6 billion in the 2017 fiscal year. With this year’s figures likely to be similar, the company could face a maximum fine of $1.62 billion.

While the business would no doubt be able to absorb such a high fine, it would cut into investor returns and any finding of wrong doing could further erode trust and future advertising revenue.

Facebook is currently -18.36% down on the stock market year to date, due to the impact of data scandals and general market volatility. While investors can pick up the stock at bargain pricing today, the company will need to address ongoing privacy concerns and blunders to regain the confidence that it enjoyed at the end of last year.

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